Stock options in divorce california

Divorce and Your Stock Options | California Divorce Guide

 

stock options in divorce california

Los Angeles Divorce Attorney Property Division in California DIVORCE AND STOCK OPTIONS Terminology An employee stock option is the right of the employee to buy a specified number of shares in the employer corporation at a specified price (the strike price, grant price or exercise price) at a specified time in the future not earlier than. Allocation of Stock Options. Stock options granted during the marriage and/or partially vested during the marriage may have a community property component. Stock options that are partially earned during the marriage are allocated between community property and separate property. Sep 25,  · Hug and Nelson are California Appellate Cases that explored the division of stock options in divorce. Under Hug, you calculate the shares owed to the non-employee spouse by thinking of an RSU as deferred compensation. The formula used to calculate the % of community interest is [Period of Time Between Start Date At Company and End of Marriage]/[Period of Time Between Start Author: Amanda Gordon.


Divorce and Restricted Stock Units in California — Gordon Family Law


An RSU is a promise by a company to an employee regarding the right to own company stock in the future. No stock is issued to the employee with a RSU grant - instead, the stock is released to the employee after certain conditions have been met. However, unlike a stock option, once vested, an RSU has a monetary value without the employee exercising the option. These days, a typical tech employee receives a large RSU grant when they join a company and may be given refresher grants periodically based on performance and company growth.

RSUs usually have a 4-year vesting schedule with a one-year cliff and after the first year of employment, RSUs vest quarterly, stock options in divorce california. RSUs are taxed under federal income tax rules based on the market value of the RSU when the shares are delivered to the employee — almost always at vesting. To ensure that employees pay the required income tax, some companies take the taxes out for the employees by taking back a portion of the RSU grant.

If an employee chooses to hold on to the shares and later sell those shares on the market for a higher price, then they pay capital gains tax on any appreciation over the market price of the shares on the vesting date. The division of RSUs as community and separate property in California is a complex topic for both family law attorneys and divorcing couples.

Part of the confusion is that as of Septemberno California court has defined a specific formula for division of RSUs at divorce.

RSUs granted and vested during marriage If RSUs are granted during marriage and vest during marriage, then division is straightforward. There are really two options: 1 If the employee spouse wants to keep the vested stock, parties can agree on an equalization based on the current fair market value of the stock or 2 If the parties want to split the then current value of the stock — half of the stock can be sold on the market and given to the non-employee spouse.

A complicating factor can be the capital gains taxes that are incurred as a result of the sale. RSUs granted but vested after marriage If RSUs are granted during the marriage and vest after the marriage ends, the division becomes more complicated, stock options in divorce california. First, vesting is contingent on the employee spouse staying with the company for several years. If the employee leaves or is terminated, those RSU grants have no value.

Also, my experience is that the parties who divorce are not super keen on staying in touch and relying on each other for many of future transactions. Under Hug, you calculate the shares owed to the non-employee spouse by thinking of an RSU as deferred compensation. You then multiply the community interest by the total number of shares that harvested and divide that number in two. The Nelson Rule looks at stock as primarily future incentives for performance, stock options in divorce california.

You then multiply the community interest by the total number of shares that have vested and divide that number in two. Either formula can work to divide RSUs- the choice of the formula is stock options in divorce california the parties. If the spouse who is awarded the RSUs wants to keep these RSUs to herself, she will argue that the grant is merely a refresher grant meant to continue compensation at the current level and is compensation for future work.

A non-employee spouse who wants the RSU stock options in divorce california because they believe the grant was only awarded due to the employees performance during the marriage will need to argue that the company has a policy of providing bonuses in the form of RSUs and that the grant was specifically awarded for past stock options in divorce california. Next, they will need to calculate what percentage of the grant is community.

However, popularity does not make the government any faster in providing clear guidance.

 

Employee Stock Options and Divorce - Divorce Magazine

 

stock options in divorce california

 

Stock options that are earned during the marriage, but vest afterwards, generally belong to the community. They are treated as deferred compensation, like certain types of pensions. Usually an employee is granted the right to buy stock, now or in the future, at a fixed price. Allocation of Stock Options. Stock options granted during the marriage and/or partially vested during the marriage may have a community property component. Stock options that are partially earned during the marriage are allocated between community property and separate property. Aug 25,  · Incentive stock options are granted to individuals for reasons connected to their employment. As a result they may only be granted to employees. They must also be approved by the shareholders of the corporation and granted at fair market value. NQSOs, on the other hand, Author: Charles F. Vuotto Jr.